Industry Welcomes APA Rules!

Litigation over transfer pricing may see a smart drop soon. Payaswini Upadhyay reports that the much-awaited advance pricing agreement rules released by the finance ministry provide tax certainty to investors.

A pact between taxpayer and tax authority for multiple years on appropriate transfer pricing methodology - that's what APAs are about. Though implemented July this year, the rules of the game have just come out... and they provide for a pre-filing "non-binding" consultation for tax payers to identify Transfer Pricing issues. This consultation will help determine which international transaction should be covered, and the broad scope and terms of the APA.

Rashi DhirPartner, Dutt Menon Dunmorrsett"The overall framework is a good framework- it provides for unilateral, bi and multilateral agreements. The most common one being the bilateral one and I think, in most part, it is consistent with the practices and guidelines that exist in other countries."

The rules also give flexibility to taxpayers to keep their identity anonymous at the pre-consultation state. The APA will also cover not just new transactions, but also those of a "continuing" nature. Experts say this will allow certainty for existing business models.

Rakesh MishraExecutive Director, PwC India"What it provides to the taxpayers is they can enter into an advance pricing agreement for transaction which are continuing. Lets say there is a transaction 'X' which its having with its associated enterprise for the past few years and now the taxpayers is looking at certainty in its tax position on this transaction."

To ensure that APAs are only used by genuine investors, the filing fees has been kept fairly high -- ranging between 10 lakh and 20 lakh rupees. But what comes as a huge plus is that the rules provide flexibility in the revision of an agreement, if the critical assumptions change, or if there is a failure to meet the agreement.

To ensure that the parties adhere to the agreement, the rules lay down a mandatory Compliance Audit. But experts say there is one thing missing.

Rakesh MishraExecutive Director, PwC India"Critical piece missing in here is provision of rollback of APAs to prior years. Most advanced APA rules, be it in Australia, US, UK , Japan, or China- they all have the rollback provision in the APA which is sorely missing in the rules that have come out. However, I am sure that this will get addressed as we go along."

The initial response from industry is that the guidelines look promising… now it's all up to the implementation now.